There is some hard lifting to be done by whichever government comes to power on 23rd May, said Pankaj Tibrewal, Equity Portfolio Manager- Senior Vice President, Kotak Mutual Fund, in an interview with ETNOW.

Edited excerpts:

US President Donald Trump is now threatening China that the trade tariffs have not worked, bigger tariff is coming. What does that mean for the world because last time when there was a trade war fear, it spooked the global markets by about 10%?

Clearly over the weekend, the escalation of the China trade tensions have again brought the worries to the equity markets.We all need to watch out over the next 10, 15 days, how it pans out. Chinas may respond by the president cancelling his US trip scheduled for this month. If trade tensions mount yet again, it is not good for the global economy. During this time, if we get opportunities of buying good companies, one should be looking constructive on that side.

What is your view when it comes to the auto space? The overall auto sales numbers have been rather disappointing. What is the outlook here?

If you look at the consumption basket, the trend is clearly weakening in terms of demand momentum. Autos is no exception. Over the last couple of months, we have seen declining numbers from all the auto majors. One sense which we get when we do the data crunching is that over the last five years, the average average selling price (ASP) for cars has increased 6-7%. Somewhere, the elasticity has started to play out. The prices of cars have gone somewhere ahead of the real means of a consumer,

Post this BS-VI and the safety emission norms, you may see some more price increase. So we continue our cautious stance on the auto sector. But it is good to see that some of the large guys are taking production cut and are trying to bring inventory in line. We will keep a close watch. The moment we see the inventory in pipeline coming to normal levels, we are keeping a close watch on the retail secondary sales because we have got the primary numbers. We may look to increase our exposure.

In the same vein, slowdown is playing out now in FMCG as well. Is this pain going to last for some time? How should one invest in FMCG altogether?

Four of the largest five FMCG companies have reported earnings till now. The common trend is slowing volume growth. The volume growth in the previous quarter, on an aggregate was 8-9%. In this quarter, for all the four guys, it is on an aggregate basis about 6%. The common thread between all the FMCG companies is that rural is slowing down faster than anticipated. The growth rates of rural and urban are on par.

Rural, which was the clear driver for the last almost four to six quarters for most of the FMCG companies, is seeing a slowdown. On the valuation side, the margin of safety has been lower. Most of them are trading upwards of 45-50x one year forward earnings which keeps us cautious. There could be some time, as well as, price correction in the FMCG space going forward. But on the consumption side, it is a little perplexing as well.

On the other hand, when you look at some of the retail names which have declared their numbers, we have seen very strong same-store sales growth. We have seen one of the AC guys reporting numbers. We have seen very strong growth coming in. It may be seasonal, but we have to watch out. Clearly on the consumption side as well, it is a slightly confusing picture.

Is it something to do with the per capita income where people start consuming less of soaps, shampoos, detergents and move towards more of the discretionary nature consumer basket? It is still early, but it could be an interesting trend to watch out going forward that some of the consumer discretionary names can do far better than the staples.

What does one buy? Rupee strength will ensure that nobody will buy IT; FMCG, auto have already slowed down; ou cannot buy private banks or corporate banks beyond a point. Whatever you like is expensive, what you do not like is not growing and everybody is liking a crowded trade?

You are absolutely right. It is an easy market. What we have done actually in our portfolios is over the last six to eight months we have taken money out of our consumption basket which may be automobiles, FMCG and deployed that in capital goods and partly in cement.

Even though over the last one-and-a-half, two months, most of the economic indicators are showing weakness, there are two sectors linked to the economy which are showing a lot of strength. Look at cement. For example, the March month volume growth at 14-15% was really surprising for us where most of the economic indicators are showing weakness.

Where is it coming from? Is it individual housing, infrastructure projects? It is something we are digging more into but that is one sector which is showing signs of consolidation, utilisations and pricing power coming back in the hands of manufacturers. We have been overweight on this sector for a while and we continue our stance doing that.

Second, if you look at the capital and engineering sRead More – Source